Teco: Changing the World

RECCOMENDATION

Based on H2L’s analysis of TECO’s key issues and background, alternative three is selected as the optimal solution for the company. The decision to revise the current system was selected because this alternative was aligned with TECO’s business strategy. Furthermore, this method mitigates a majority of the risk that would be incurred if TECO were to eliminate an automation division or radically change their MCS. The following recommendations are made to revise the current management compensation and evaluation system.

One of key issue identified was the complexity of TECO’s value added measure of performance calculation. The complexity of the value-added method is due to the lack of transparency. The first factor is the lack of transparency for compensating shareholders and employees. The relation between productivity and bottom line results will be addressed through more relevant variables for the income split calculation. Variables in the revised income split calculation will include: productivity, labour market conditions, and significant changes in the task environment. Productivity will be measured separately for senior managers, sub unit managers, and front-line employees. Senior managers will be measured on the productivity on the company as a whole, while division managers will be measured on a mix of the productivity of their division and the company as a whole. The percentage split for productivity of the division and company as a whole will be contingent on the degree of environmental factors that are out of control of division managers. Front-line employees will solely be measured on individual productivity levels. Individual compensation will be based on a piece rate bonus combined with quality assurance measures.

The integration of environmental and uncontrollable factors will also be integrated into the value added calculation to address the complexity dilemma. Interests paid out will remain in the value-added calculation but will be revised to include only domestic interest paid. The Taipai bank is a social shareholder. Including this domestic interest it aligns TECO’s goals to give back to society and thus should be used as indicator in the value-added formula. Conversely, interest paid to foreign convertible bonds will be excluded from the formula. The convertible bonds are preset and out of the control of the employee. The inclusion of depreciation will remain in the calculation regardless of the increased automation due to the high degree of management control involved.

Economic, competitive, and intervention are uncontrollable factors that will be incorporated into the